“How does Income Tax work? Do I pay Tax on all my income?”

This has been a frequent question asked, I am here to answer your questions.

Each tax year, you get a personal allowance. In our current tax year, the personal allowance is £12,500. You do not pay tax on this income.

Your personal allowance may vary if you claim:

•  Marriage Allowance

• Blind Person’s Allowance

• Your personal allowance can be smaller if your income exceeds £100,000

How does your Income Tax work?

Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,500	0%
Basic Rate	£12,501 - £50,000	20%
Higher Rate	£50,001 - £150,000	40%
Additional Rate	Above £150,000	45%

Are there any Income Tax Allowances?

Yes, there is a tax-free allowance for:

• Saving interest

•  Dividends

• Your first £1,000 of income from Self-Employment

• Your first £1,000 of income from property you rent (Rent a Room Scheme is not appliable for this tax allowance)

What do I pay Income tax on?

• Employment income (your salaries)
• Benefits from Employment such as company car, Medical insurance etc
• Profits from your Self Employment – Online and offline (above the trading allowance - £1000)
• State benefits such as

•   Bereavement Allowance (previously Widow’s pension)

• Carer’s Allowance

• Contribution-based Employment and Support Allowance (ESA)

• Incapacity Benefit (from the 29th week you get it)

• Jobseeker’s Allowance (JSA)

• Pensions paid by the Industrial Death Benefit scheme

• The State Pension

• Widowed Parent’s Allowance

On 29 May 2020, the government extended the Coronavirus Job Retention Scheme (CJRS). 

Furloughed Employees can now work part-time

Employees that have been furloughed due to COVID-19 will be able to have a flexible employment from the 1 July 2020. Employers will have the flexibility to allow their furloughed employees to work part time. Despite this change, the government will continue paying 80% of salaries of their normal hours that they have not worked until the end of August. 

The employer has control on the employment hours and the employer will be responsible for paying the full wage to their employee. There are no set requirements of the number of hours that an employee must work, this will vary depending on your business requirement. 

What must be done?

This new working arrangement between an employee and employer must be confirmed in writing. This agreement with an employee must cover at least one week and reported and claimed when the employer claims for the CJRS grant. You can make claims every fortnight or month, but you will be required to submit both the standard hours of the employee and the actual hours worked.

 If you have an employee who is unable to work or you do not have work to provide them, the employee can remain as furloughed and you can claim the grant under the current conditions.

Employer Contributions

There are a few changes that will change over the upcoming months regarding employer contributions.

June/July:

• The government will pay 80% of wages up to a maximum of £2,500
• Employer National Insurance and Pension Contributions will be covered for the hours not worked by the employee.
• Employers will have to pay employees for the hours they have worked.

August:

• The government will pay 80% of wages up to a maximum of £2,500
• Employers will have to pay for Employers National Insurance and Pensions Contributions

September:

• The government will pay 70% of wages, up to a maximum of £2,187.50 of the hours the employee does not work
• Employers will be required to pay the 10% of wages to make up 80% of the total up to a maximum of £2,500
• Employers pay National Insurance and Pension Contributions

October:

• The government will pay 60% of wages, up to a maximum of £1,875 of the hours the employee does not work
• Employers will be required to pay the 20% of wages to make up 80% of the total up to a maximum of £2,500
• Employers pay National Insurance and Pension Contributions

If you are a smaller employer, some or most of your national insurance costs will be covered by the Employment Allowance.

CJRS – New Furloughed Employees

The Coronavirus Job Retention Scheme will close to new individuals who wish to be furloughed from 30 June 2020.

• From 30 June, you will only be able to furlough employees who have been furloughed for a full three weeks prior to 30 June
• The deadline for newly furloughed employees is 10 June to fit the three-week criteria

How to Claim?

Go to GOV.UK and search for Coronavirus Job Retention Scheme. Everything you need to know about this scheme is on GOV.UK

Self-Employment Income Support Scheme (SEISS)

• The Self-Employment Income Support (SEISS) has also been extended similarly to CJRS.

• Self-employed individuals who are eligible will be able to claim a SEISS grant in August.

• The scheme will be targeting towards individuals who have been affected severely by COVID-19 and the criteria will be the identical as the initial grant.

• To be eligible for the second grant, you do not have to claim the first claim.

• The taxable grant will be 70% of your average monthly profits for three months. This will be a maximum of £6,570 and paid in one instalment.

• On 13 May 2020, the first SEISS was introduced and the deadline to claim this falls on 13 July 2020.

How to Claim?

The eligible self-employed individual must make this claim themselves. HMRC will then calculate the grant you will receive

More information regarding the second grant will be available on 12 June but in the meanwhile, GOV.UK has the most recent and regular information regarding this scheme.

https://www.gov.uk/government/organisations/hm-revenue-customs

Working from home has increased throughout the years. This pandemic has welcomed working from home all over the world. Employees that are home working may face certain expenses that their employer may reimburse. If the employer does not reimburse these costs, the employee will have to see if tax relief is available.

1. Employer reimbursing the costs
2. Employee seeking tax relief
3. Purchase of Office Equipment

Reimbursement

Employers are now able to make tax-free payments to help employees cover additional expenses incurred whilst working from home. These payments are not subject to either income tax or national insurance.

Am I Eligible?

To be eligible for this reimbursement, the employee must be carrying out their tasks under home arrangements. This should be some or all their work responsibilities at home.

HMRC has a clear guideline on what expenses can be reimbursed. If an employee has a regular work pattern such as working at home for an X number of days during the week, this will be accepted as working from home. The days chosen to work at home can vary but there should be a consistent pattern.

However, if you decide to take your work home for the evening, this will not be accepted. You will not be able to claim a reimbursement for any costs. There must be a clear agreement to work at home instead of the work locations.

 COVID-19 Update: During this pandemic, if an employer’s office is closed or you have been advised to self-isolate, HMRC will accept that you are working from home. Employees will now be eligible to receive the allowance tax free from the period approved by their employer or when the government advice was declared.

The Expenses

The reimbursement can only cover certain employee expenses as stated by the HMRC guidance. There are usually two core approaches: 

1. The employer can choose to pay a fixed amount to the employer

This follows as:

• £6/week for employees paid weekly
• £26/month for employees paid monthly

This is a fixed rate and beneficial to both employers and employees. Employers do not have to explain these expenditures and employees do not need to keep a record of their additional costs. 

If the flat rate is not considered acceptable then a larger amount can be paid if there are clear proof to claim these expenses.

• The employer can reimburse the additional costs. These costs can include:
• Internet and telephone costs
• heating and lighting costs
• insurance
• metered water

These costs can only be claimed if they are an additional cost to you whilst working from home. If working at home will have no impact on your home expenses, these cannot be claimed. Some costs that you cannot claim are:

• Rent
• Mortgage costs
• Council tax

Internet and broadband can be a confusing one. HMRC states that if an employee already has internet as a regular existing expense, this cannot be claimed. However, if you start working from home and you have no internet, and this is a requirement. This will be served as an additional cost and this can be claimed. Similarly, landline would work in a similar manner to broadband. 

Employees seeks tax relief

An employer may not choose to reimburse some, or all the additional expenses acquired from working from home. This means the employee is not automatically allowed tax relief on their extra costs. Tax relief is given to costs that are exclusively for the employee's employment.

Tax reliefs can only be claimed if an employee can meet certain requirements: 

• The employee completes some or all their work tasks.
• These tasks require the use of appropriate facilities and such facilities are not avaliabel to the employee on the employer’s premises (or if the employee lives too far that it is unreasonable to travel there daily)
• Before the employment contract was agreed on, the employee was not given options to work at the employer’s premises or elsewhere.

COVID-19: For employees working from home due to the outbreak, condition one and two should be easily met. However, condition three could cause implications for employees seeking tax relief if HMRC do not consider this met.

Expenses

An employee who can prove that their home is also their workplace can claim tax relief for these expenses:

• Additional heating and lighting
• Metered water

Costs that they cannot claim include:

• Insurance
• Water rates
• Mortgage interest
• Rent
• Council tax

Purchase of Office Equipment

Laptops are convenient however, in the long term, they might not be as comfortable. They may cause discomfort resulting to equipment purchases such as desktops, monitors and keyboards.

Employer Purchase

If an employer has purchased the essential equipment and it is not used by the employee for private use, the employee has no taxable benefit.

Employee Purchase

Due to the current outbreak, employees may have purchased their own equipment. Employers may have recommended this and offered to reimburse the cost. However, the reimbursement of these employee expenses will be taxable to the employee even if they solely use it for their employment. Employees will struggle to attain tax relief under capital allowances for any cost of the equipment.

One solution to the employee purchase of office equipment is for the employer to settle the tax receipt once their employee has been reimbursed by including it in a PAYE settlement agreement. On the contrary, this will result in an increase in administration and cost for the employer.

On 26 March 2020, the government introduced a new scheme called Self Employed Income Support Scheme (SEISS) to provide aid for individuals who are self-employed. A member of partnership can also claim this scheme. The scheme is now open to those who have been impacted by COVID-19 and have annual profits of less than £50,000. Half of their income should also be obtained from self-employment.

If the conditions are met, the SEISS will provide a grant value:

• 80% of the average monthly trading profits
• Capped at a total of £7,500
• For a duration of three months

The scheme may be prolonged if circumstances change.

Who do I Contact?

HMRC will contact you directly if you are eligible for the scheme. From the 4 May 2020, HMRC have been contacting individuals who are eligible for SEISS and you will be asked to claim online using the GOV.UK Online Service.

HMRC will calculate how much an individual can claim and then you will have to make the claim to receive the fund.

You can go online to check if you are eligible for this scheme by clicking here.

You will need the following to check if you are eligible:

• Unique TaxPayer Reference (UTR)
• National Insurance Number

Am I Eligible for SEISS?

You must be either self-employed or a member of a partnership

• You carry on a trade that has been impacted by COVID-19
• You have traded in the Tax Years 2018-19 and 2019-20
• Your Self-Assessment Return for the Tax Year 2018-19 has been filed on or before 23 April 2020
• You expect to remain trading in the Tax Year 2020-21
• You meet the profit criteria

The profits criteria are met if:

1. For the Tax Year 2018-19, your trading profits were:

• 0 < Profit < £50,000 and

• At least equalising to your non-trading income for the same tax year

2. You traded in each of tax years 2016-17, 2017-18 and 2018-19 and:

• 0 < Average profits for the years < £50,000 and

• The total profit was at least equal to your non-trading income for those years

3. You traded in the Tax Year 2017-18 and 2018-19 and not 2016-17 and:

• 0 < Average profit for the two tax years < £50,000 and

• The total profit was at least equal to your non-trading income for those two tax years

Who is not eligible?

• If you started your trade after 5 April 2019
• Your Self-Assessment Return for the Tax Year 2018-19 has not been submitted by 23 April 2020
• If your trading income is less than half of your overall income
• You operate a Furnished Holiday Letting business

How Do I Claim if I am Eligible?

The online claim scheme is expected to open on 13 May 2020 however, an alternative method will be provided for those who cannot claim online.

You will be using the GOV.UK online service to make complete this claim, and you will need the following:

• Your Unique Taxpayer reference (UTR)
• Your National Insurance Number
• Your Government Gateway user ID and password
• The details of the bank account you want the grant to be paid into

Frequently Asked Questions

Can we make your claim for you?

• Unfortunately, we cannot. As agents we can only assist you to check if you meet the criteria of this scheme, however, the claim must be completed by you.

How long do I have to wait for the claim to be approved?

• As you file the claim, you will be told straight away if the claim has been approved. You will be notified how much you are eligible for and how this has been calculated.

How long do I have to wait for the payment?

• Once approved, the payment will be made to the bank account you have provided within six working days as a single instalment.

What do I need to do after the claim?

• Please ensure that you keep a clear record on the amount being claimed, reference number and any evidence that shows your business has been impacted by Coronavirus

Am I eligible if I have more than one income stream?

• If your trading income accounts for half or more of your overall income, you are eligible.

I do not have a Government Gateway Account, what do I do?

• Please click here to set up your government gateway account.

Please contact us for further information.

COVID-19 has caused unprecedented business interruption and lots of businesses are not prepared to face this unexpected business interruption.

Prevention is better than cure; and if your business is not prepared to handle the current crisis, it could be fatal to the business.

Be sure to work closely with your advisory team (internal and external), your finance team, mentors, industry colleagues; and plan how to be resilient during this difficult time.

Here are Five IMPORTANT things you should be focusing on right now:

1.    Safety of your team

More than anything safety of your team is paramount. Make sure they are protected during this pandemic. Educate the team how to stay safe during this pandemic and set up remote working and avoid non-essential travel.

Set up regular calls and online meetings to keep the team motivated and look after their mental health.

2.    Plan your cash flow

Cash is king and the lifeblood of any business. Do you have a cashflow forecast for the next 12 months? Cashflow forecast will provide you with a good indication how long your business can survive with the downturn in sales and what you should do for the survival of the business.

a.    Contact your suppliers and creditors and try to negotiate payment flexibility. During this difficult time, many suppliers will agree to extend their payment terms.

b.    See how you can reduce your monthly overheads

·     If you are paying for any services that are not important to the business, consider cancelling them

·     Re-negotiate your costs with your suppliers

·     Consider whether you can freeze your monthly cost if the service is not used by the business during the period

·     Re-consider your budgets – For example if you are not selling your products or services during this period you may consider reducing your marketing budget.

c.    Business Rates:

·     Check you are qualified for the business rate relief if not speak to your local council and request a payment holiday.

d.    Cash Grants:

·     Government is offering cash grants for small businesses which occupies a property. Keep an eye on the letters from the council regarding this grant. Some local councils have requested the clients to complete an online form to claim this grant.

e.    Rent:

·     Speak to your landlord and check on a payment holiday

·     Government has confirmed that commercial landlords cannot evict the client for unpaid rent up to 3 months.

f.     Furloughing:

·     If you must close your business due to COVID-19, consider furloughing your employees.

·     Government has confirmed they will cover 80% (maximum of £2500) of the salaries for the furloughed staff.

·     It’s important not to lose your key employees and protect their value to the business and you will need them even more when this pandemic is over.

g.    Check with your Bank on the financing options available:

You should be in regular contact with your banks and get the best financing plan in place so the business can survive during this difficult time. You should discuss what type of financing is required depending on your company’s needs, for example:

·     Overdraft – if you need finance for short term

·     Bank Loan – if you need financing for a long term

·     Invoice finance – If your customers are taking more time to pay

·     Asset Finance- if you are looking to purchase a business asset  

3.    Insurance

Does your insurance policy cover business interruption and loss of profits? Please make sure you check with your Insurance provider what is covered. If you are not already covered for the business interruption and loss of profits, there is nothing much you can do at this point. However, it’s worth making a note and discuss this when your insurance is due for renewal. This is not the first-time businesses are affected by a pandemic and possibly the last time either.

4.    Cyber Security

More and more people have started working remotely due to the lockdown and there are lots of emails and information available in regard COVID 19. Cyber criminals are very busy during this period targeting vulnerable individuals and businesses. Cyber security is quite important during this period, and following are few precautions you must take,

·     Make sure all the computers have up to date Anti-Virus software

·     Take special care on emails and be super vigilant when opening suspicious links

·     Password protect your computers

·     Activate 2-factor authentication whenever possible

·     Use of VPN links to access secure data

5.    Brainstorming

The leadership team should be in regular communication to discuss how to handle the business during this crisis and survive unscathed through not only the pandemic itself but the likely recession that will follow.

6.    Look for opportunities

Lots of businesses may crash during this pandemic. It’s expected nearly one million businesses will be closed during this pandemic. It’s not always bad news as there are some businesses, they do thrive during situations like this. So, please prepare yourself and look for opportunities and there will be always light at the end of the tunnel.

Good luck and take care of yourself and one another.

CORONAVIRUS - INTRODUCTION

This pandemic has left most of us uncertain and unsure about our businesses and economy. Hopefully, this will give you a brief overview.

Please keep in mind that these topics are constantly changing according to the current affairs so it is important to consistently stay up to date using reliable resources such as GOV.UK. If you are still unsure, feel free to drop us an email and we will try our best to guide you.

Take care of yourself and one another.

STATUTORY SICK PAY (SSP) - EMPLOYEE

How do I know I am Eligible?

• If you earn an average of £118 per week
• If you are a contractor employed under an umbrella company

How do I Claim SSP?

• You need to inform your employer immediately
• Get an isolation note from NHS 111 if your employer requires evidence (Employers cannot ask for a fit note)

What do I do if I am Self-Employed or earning below the lower earnings limit of £118 per week?

• You can claim Universal Credit or Contributory Employment and Support Allowance

STATUTORY SICK PAY (SSP) - EMPLOYER

How do I claim this?

• Employers are asked to record absences and payments of SSPs
• You do not need to obtain a GP or Doctors fit note
• The government will set up this repayment as soon as possible.

THE CORONAVIRUS JOB RETENTION SCHEME: FURLOUGHED WORKERS

A furloughed worker is an individual who is currently still employed but is unable to work due to circumstances out of their control such as Covid-19.

This scheme has been implemented to support employers who cannot afford to pay wages and avoid redundancies.

All UK Employers, big or small are entitled to this scheme. 80% of salaries, up to £2,500 per month will be covered by the government.

This scheme will be applied from 1st March 2020 with a preliminary period of three months however, depending on future circumstances, they may change.

How do I claim this?

• Affected workers will have to identified as furloughed and notified before presenting this information to HMRC

SMALL BUSINESS GRANTS

Grants (non-repayable) have been set to help support smaller businesses including retail, hospitality and leisure businesses. This is a one-off cash grant up to £25,000 for businesses who use properties being used as cafes, restaurants, shops and leisure. A full list can be found on the gov.uk website.

This grant provides businesses:

• A grant of £10,000 for businesses properties with a rateable value under £15,000.
• A grant of £25,000 if there is a rateable value between £15,001 and £51,000.

Am I eligible?

If you are eligible for this grant, you do not have to do anything, your local authority will contact you and guide you from there.

Please contact your local authorities for any queries.

CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME

Coronavirus Business Interruption Loan Scheme (CBILS) aims to aid businesses such as SMEs affected by COVID-19 manage their funds. This consists of a loan up to £5 million with a loan term between 1 to 6 years with no interest for the first 12 months (the government will cover the first year of interest)

Am I Eligible?

• You must be a UK based business with a turnover of no more than £45 million per annum.
• Your business meets the criteria with British Business Bank

How can I apply?

• The CBILS Scheme is now open and most major banks are offering this scheme.
• Contact your bank or one of the 40 accredited finance providers to discuss your business plans.

There is more information on:

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loanscheme-cbils-2/for-businesses-and-advisors/

BUSINESS RATES HOLIDAY

There will be a 100% business rates holiday over the next 12 months to cover all retail, hospitality and leisure businesses in England.

This 12-month period will run from April 2020 until March 2021

For further guidance, businesses can contact their local authority regarding this from 20 March 2020.

VAT DEFERRALS

The government will support UK businesses registered for Value Added Tax (VAT) by deferring payments for three months from 20 March 2020 until 30 June 2020.

Am I Eligible?

• All UK businesses are eligible and automatically enrolled. During these three months, you will not have to make a VAT payment.

INCOME TAX DEFERRAL

Self-Assessment payments due on the 31 July 2020 may be deferred until 31 January2021.

Am I Eligible?

Yes, If you have a second self-assessment payment due on the 31 July 2020. The deferral is optional, if you are able to pay your payment, you should.

What do I have to do to get my SA deferred?

This automatically applied and there will be no penalties or interest for the payment if you decide to defer it until January 2021.

What if I have outstanding business Tax Liabilities?

This also applies to businesses and firms that are currently facing a finance struggle as a result of COVID-19 and have tax liabilities, HMRC have extended their Time to Pay Offer.

SELF EMPLOYMENT

Self Employed individuals will be able to apply for a grant that will cover 80% of their monthly averaged profits over the last three years. This grant will value up to £2,500 per month to help self employed individuals through financial distress. However, this will not take place till early June.

Companies House – Late filing penalties

A penalty notice is issued by Companies House when a limited company does not file the statutory accounts with companies house on time. The penalty notice will be issued as soon as the accounts is filed, and the scope of the penalty depends on how late the accounts are filed.

The table below gives you an idea on the penalty:

Delay of the Filing Accounts	Private Company & LLP (£)	Public Company (£)
< 1 month	£150	£750
1 > 3 months	£375	£1,500
3 > 6 months	£750	£3,000
6 months >	£1,500	£7,500

The penalty can be paid in various ways and the quickest methods include sending a cheque or using the BACS payment methods. There are alternatives provided on the letter with full details on how to complete this payment.

If the penalty is not paid on time, Companies House may instruct debt collectors to recover the penalties due and the company may end up receiving a CCJ (County Court Judgement) or bailiffs at the door.

Appeals

You can appeal against a penalty if you believe that this was undeserved. However, appeals are only successful if you can prove that the circumstances are exception such as an unforeseen tragedy.   

What is not an exception?

• You cannot afford to pay
• You relied on your accountant
• This is your first accounts
• Your company is dormant

A full copy of what is exception and further details can be found on: www.gov.uk/companieshouse

Considering the level of penalties, you may be liable, we would advise to file the Accounts on time. It’s the responsibility of the director to ensure the Accounts is filed on time and a qualified accountant can assist you in filing the correct accounts on time. If you need any assistance in regard to your companies house accounts, please get in touch.